May 27, 2022 12:24 am

Montero warns that he will lower the 3% deficit with a massive tax increase




The public deficit closed in 2020 at 11%, the Government expects that this year the figure will be ‘only’ 5% and trusts that the gap in 2024 will be reduced to 3.2%. These are the plans that the Executive had since April 2021, when the stability program was updated. Now the scenario is different and the Treasury predicts that the deficit will fall below 3% in 2024. How? Raising taxes, because of lowering spending, nothing.

The department led by María Jesús Montero acknowledges this in a response to one of the recommendations of the Tax Authority (Airef). “Work is being done to incorporate into this fiscal path the improvement

of the public balance that the measures of components 27, 28 and 29 of the recovery plan will suppose”, says the document. These components refer to the fight against tax fraud, the improvement of the efficiency of public spending and the fiscal revolution that the Executive is preparing for the coming year.

In this sense, the Treasury recognizes that the tax reform it is preparing will mean “a permanent improvement in collection”, with the aim of matching it to that of our European peers. This, in theory, would mean increasing collection by up to 80,000 million euros. For all these reasons, the ministry is clear about what it expects. “With these reforms in public revenue and expenditure, the structural situation of public finances will improve and it is very likely that the Spanish public deficit will once again fall below the 3% threshold in the short-medium term,” says the Treasury response.

This is the first time that Montero’s department has openly set the objective of complying with what until now were the European fiscal rules -3% maximum deficit- and that they are now suspended due to the pandemic, but that they will return, it is still unknown with what level of demand, already in 2023.

The formula chosen by the Government to reduce the gap in the accounts is, to a large extent, in a massive increase in taxes. Also, it must be remembered that the Airef and the Bank of Spain They have been demanding that the Executive design a fiscal consolidation plan to put the public deficit and debt on track for more than a year, and Montero has chosen to attack from the revenue side and not from the expenditure side.

This decision will be reflected in the new stability program, which the Government must send to Brussels next April, although the conclusions of the group of experts formed by the Treasury to undertake a major tax reform will arrive before then.

Green taxes, wealth…

Unofficial sources of Treasury admit that the intensity of the tax reform announced for 2023 will depend largely on the inertial adjustment allowed by the extra income provided by the economic recovery and the injection of investments from European funds, which will also leave a good handful of hundreds of millions of euros in the treasury coffers. They slip that the more the income gap with the EU average is closed in a ‘natural’ way, the less fiscal measures will be adopted.

What is open to debate within the Government is the scope of the fiscal reform, or in other words, the number of tax figures that will have to be adjusted upwards, but in no case the general principle that the budget adjustment must be made at once of tax increases.

Component 28 of the recovery plan lists the wide range of possibilities that the Government is considering to generate new tax revenue and meet the objectives that are required of it in terms of budgetary consolidation. These include the new taxes on financial transactions (Tobin tax) and on certain digital services (Google tax), on which the Government still has great hopes despite the fact that they have not finished taking flight in terms of collection; the upward harmonization of the taxation of wealth (Patrimony, Inheritance and Donations); the reforms in Societies to bring their collection closer to the European average; and the entire package of environmental taxation measures that the Executive has already begun to deploy with the registration tax, the reform of the tax on fluorinated gases and the new figures on waste in landfills and single-use plastics.

The lion’s share of the tax increase, however, could come more from the pruning of tax benefits in large taxes (Income, Corporations and VAT) than from the new figures. The Government has transferred to Brussels in different official documents its confidence in obtaining up to 5,000 million euros extra based on liquidating existing fiscal aid in these taxes and that according to Airef do not meet the objective for which they were created.

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